THE DIGITAL ECONOMY, ARTIFICIAL INTELLIGENCE AND BLOCKCHAINfoglers.com/uploads/press/file/638/RDavis_BHearn... · • Requires companies that hold people’s data to erase it once

THE DIGITAL ECONOMY, ARTIFICIAL INTELLIGENCE

AND BLOCKCHAIN

Ron Davis & Bill HearnFogler Rubinoff LLP

LEXPERT - November 27, 2018

TODAY’S TOPICS

The Digital Economy Canada’s 2018 Digital and Data Consultations Artificial Intelligence (AI) – Privacy & EthicsWhat is blockchain/distributed ledger

o Just Hype?o Two Basic Concepts Behind It o What It iso Sample Use Caseso Where It’s At

Blockchain/Distributed Ledger Privacy and Security Issues

THE DIGITAL ECONOMY

CANADA’S 2018 DIGITAL AND DATA CONSULTATIONS

ARTIFICIAL INTELLIGENCE (AI)

25

BLOCKCHAIN

BLOCKCHAIN: A DEFINITION

• BLOCKCHAIN: A form of distributed ledger technology enabling a digitised, decentralised, public ledger of transactions. Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added in chronological order. It keeps a track of transactions without central recordkeeping. Each node (a PC connected to the network) gets a copy of the blockchain, which is downloaded automatically. (Originally developed to create the peer-to-peer digital cash Bitcoin. )

• DISTRIBUTED LEDGER TECHNOLOGY (DLT): A digital system for recording the transaction of assets in which the transactions and their details are recorded in multiple places at the same time. All participants within a network can have their own identical copy of the ledger. Unlike traditional databases, distributed ledgers have no central data store or administration functionality

from The Ultimate Disruptor: How Blockchain Is Transforming Financial Services – Gowling WLG, Spring 2018

A TERMINOLOGIC AL POINT

• “To understand the power of blockchain systems, and the things they can do, it is important to distinguish between three things that are commonly muddled up, namely the bitcoin currency, the specific blockchain that underpins it and the idea of blockchains in general.”

• THE ECONOMIST, Oct. 31, 2015

BLOCKCHAIN: BIG DEAL OR HYPE?

TWO BASIC CONCEPTS

1. DOUBLE/TRIPLE ENTRY ACCOUNTING

Debit = entry on left side of Account / Credit = entry on right side of Account

TWO BASIC CONCEPTS

2. IDENTITY

SO, WHAT IS “BLOCKCHAIN”?

- Decentralized (distributed) ledger of transactions

- Maintained by a network of users (peer to peer)

- - Ledger consists of blocks of transactions linked

- - Chain of blocks grows longer over time as new blocks are added

- Cryptography / incentive mechanisms secure data in ledger

• WHAT IS A DISTRIBUTED LEDGER?

• Distributed

Central

DISTRIBUTED LEDGER

• Ledger is a complete history, verifiable & auditable• Participants see a duplicate, agree on validity • Self-proving: looking authenticates data• Presumptively tamper-proof once transaction is in the ledger

HOW IT MIGHT WORK

Users initiate transactions

using their Digital Signatures

Users Broadcast their

transactions to Nodes

One or more Nodes begin

validating each transaction

Nodes aggregate validated

transactions into Blocks

Nodes Broadcast Blocks to each

other

Consensus protocol used

Block reflecting “true state” is

chained to prior Block

TYPES OF BLOCKCHAINS

Marcos Allende Lopez / Medium Blog

USE CASES

• Corporate (Delaware, Dubai)• Banking / Finance (IBM Hyperledger/

R3/ Utility Settlement/ Transfers)• Insurance (B3i)• Business- Smart Contracts • Supply Chain (Retail / Wholesale)• Energy• Real Estate (registries - Cook County,

Vermont, Sweden)• IP (rights/ use/ ownership)• Securities (OSC, BCSC, SEC)• Health (patient records)• Public sector• Art Sales

Bart Suichies / Medium Blog

USE CASES 1PUBLIC SECTOR

• Administration of benefits, pensions, tax, passports driver licences, marriage licences, patient records, land registry, national archives, voting and law enforcement.

• Chainalysis, a cybersecurity start up uses distributed ledgers to track digital identities, has recently signed a deal with Europol.

• CDC is exploring blockchain for disaster relief networks.

• Securing personal information

• Illinois Blockchain Initiative (illinoisblockchain.tech)

• Asset registers –assets securely and reliably record, tracked and validated.

• UK Start-up Everledger is using it to tackle fraud and theft in the diamond industry.

USE CASES 2SMART

CONTRACTS

Pros:

• Secure and precise

• Reduced transaction costs – contract performs automatically without human intervention

Cons:

• Not as secure yet as in theory

• Unresolved legal questions – e.g. informed consent; enforcement of remedy

NON-SMART CONTRACT

SMART CONTRACT

BLOCKCHAININ LITIGATION

• Securities enforcement cases in the U.S.

• Some examples…

• SEC v. Trendon T. Shavers and Bitcoin Savings and Trust (2013)

• In re Erik T. Voorhees (2014)

• In re Bitcoin Investment Trust and Second Market, Inc.(2016)

• In re Sunshine Capital, Inc. (2017)


Examples of Blockchain Litigation Scenarios:

• The DAO

• Tezos

• Parity Hack #1

• Parity Hack #2

• Tether Hack


Presently, no known Canadian blockchain litigation

What Does the Future Hold for Litigation?

• Different context, but the same substance?

• New challenges for civil litigation?

• Increased risk for professional negligence claims?

BLOCKCHAIN –PRIVACY

• On a blockchain:• every transaction is transparent, i.e. recorded on a publicly-

available ledger and• disclosed transaction information (may include personal

information) is irreversible• data can only be added to the blockchain, not changed or

removed - each node replicates the blockchain• change applied to a node will be rejected by the other nodes

in the network• irreversibility gives great security and certainty over time within

the chain of transactions


• This transparency and irreversibility can raise serious privacy law issues • Protecting individual’s right to correction and right to be

forgotten re personal information on a blockchain

• Publicly disclosed personal information that becomes inaccurate, discriminatory or dangerous to that person cannot be corrected or erased as may be required under privacy laws

• Similar problem where a significant change requires a change (e.g. change of name or gender, insolvency, criminal conviction/pardon)


“Privacy Poisoning”


• To clear data from a blockchain, more than half the nodes would have to work together to rebuild the blockchain to a time before that data was added

• The blockchain would have to be rewound to a previous state and painstakingly rebuilt

• During the rebuilding, the blockchain data would be out of date. The blockchain would be vulnerable to unwanted changes, damaging its trustworthiness


INSURANCE SCENARIO

• Let’s say you live in smart home that uses sensor data to monitor your home security. You have a home insurance policy. To lower premiums, you allow your smoke alarm and security sensor data to be recorded on a blockchain.

• The blockchain data can be accessed by the police, the fire department and the insurance company so they can audit any smoke alarm or security events. Once your insurance period has ended, you should be able to remove your security data from the blockchain to enhance your privacy.

• Data on the blockchain indefinitely would increase the risk of it being identified as yours, and your activities being tracked by any entity with access to the blockchain.


LITIGATION SCENARIO

• A court might be called upon to try to compel the entire set of nodes in the blockchain to be shut down … but such an order:

o could be impractical and hard to enforce (e.g. nodes might be different jurisdictions – cf. Equstek )

o may be unacceptable for public policy reasons: to remove the bad data, good data might be exposed to interference

o the blockchain may support applications

o on the other hand, reasonable expectation of privacy


GDPR

• Requires companies that hold people’s data to erase it once the original for it is complete. People must be able to remove their data from third party databases after a period of time.

• Blockchain presents an obstacle to exercising that right.

• So being able to the remove data from the blockchain without “breaking the chain” would be beneficial for privacy (also to save space on blockchain servers).


JURISDICTION

• Nodes in different jurisdictions

• Which privacy laws apply?

• What happens when the law of one jurisdiction violate those in another?


• What transparency means for privacy

• When new data is added to a blockchain, peers on the network check it to ensure it is valid before being adding

• Sometimes the data is personal

BLOCKCHAIN – PRIVACY

• Blockchains need not be bad for privacy

• Design is the key

• Technological solutions may be found: e.g. sidechains, Memory Optimised Flexible Blockchain

• Designers can carry out an advance privacy impact assessment to ensure nothing infringes individuals’ privacy rights

• Privacy by Design is critical because getting the privacy piece wrong is difficult to reverse


• See the Office of the Privacy Commissioner's views on blockchain and privacy in

• OPC's 2016-17 Annual Report to Parliament issued September 21, 2017 Real Fears, Real Solutions – A plan for restoring confidence in Canada's privacy regime and

KEY TAKEAWAYS

• Early days

• Still in development

• Huge promise, but some perils including fraud to deter and penalize, and some contractual and regulatory compliance issues to resolve and manage

• Will become pervasive in many verticals

THANK YOU

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